Getting a home loan on maternity leave
It's better to get a home loan before going on maternity leave if you can. While you can get a home loan during parental leave, it's harder to get approved and your borrowing power will shrink.
Key takeaways
- Applying for a home loan while on maternity leave reduces your borrowing power and makes you a riskier applicant because your income will decrease for a while.
- The good news is that some lenders will approve a home loan or a mortgage increase even though you're not receiving a permanent income.
- You'll just need to show that you can afford the loan, have a realistic borrowing amount and take the time to find a lender that will accept your application.
Applying for a mortgage during maternity leave
The best suggestion is to get a home loan before you take maternity leave if possible. Once your lender has accepted your application, they'll have no idea you're on maternity leave (as long as you keep making repayments).
5 tips for applying for a home loan while on parental leave
But if you can't avoid applying for a home loan while on maternity leave then here are some tips to help you succeed:
- Get documentation from your employer. If you're on paid maternity leave you could strengthen your application with a letter from your employer outlining the terms of your maternity leave including your return date, future employment terms and your salary upon return.
- Save at least a 20% deposit. It's always harder to borrow more than 80% of a property's value. Having a minimum deposit of 20% will make your application stronger (and you won't have to pay lenders mortgage insurance).
- Set a realistic budget and loan amount. Work out your income and expenses carefully to make sure you're borrowing an affordable amount.
- Talk to multiple lenders before applying. Don't submit a full application without checking with a lender first. Some may reject your application once they know you're on maternity leave so be upfront about it. Rejected applications look bad on your credit score.
- Consider talking to a mortgage broker. A mortgage broker has a good sense of which lenders will accept your application and can guide you through the whole process.
What will a lender consider when reviewing my application?
Lenders will typically take into account whether or not you are on paid or unpaid maternity leave as well as your ability to service the mortgage repayments using:
- Assets such as genuine savings or shares
- Equity that you have in existing property
- Government benefits or monetary gifts (if applicable)
Did you know?
Women are still taking on most of the parental leave. In 2023–24, they made up 83% of all primary carer's leave, and on average, took 9.1 months off for maternity leave, compared to just 3 months for dads.
Applying for a home loan before taking maternity leave
If you're still working at the time you apply for the home loan then the whole application process will be a lot easier.
But if you know you'll be out of work soon due to childbirth make sure you can afford repay the loan once you're off work.
- Look at how much you're hoping to borrow, how much you earn and your other expenses.
- Subtract your income from that calculation. Factor in maternity leave payments too.
- Can you afford repayments in the scenario? Do you have other savings to cover the shortfall?
If the answer is no then you should probably rethink the home loan altogether or borrow a smaller amount. Getting into debt and then immediately missing repayments could be disastrous.
How do I handle home loan repayments when I'm on parental leave?
It's hard to afford mortgage repayments if you or your partner are off work for months. Some lenders let you take a home loan repayment holiday for a few months.
This is a temporary pause on your repayments, which can be useful when you're on parental leave. Just keep in mind that your lender still charges interest during the break, which gets added to your loan.
Many banks actually have specific support guidelines for customers on parental leave. Westpac lets eligible customers reduce repayments or pause them for up to 12 months.
Generally, you need to have your home loan for at least 12 months before you can apply for a repayment pause. Enquire with your lender directly to see whether this feature is available.
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